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Forex Taxes

  • #161
  • Mar 13, 2007 10:25am Mar 13, 2007 10:25am
TT,

OK, that makes sense, but isn't the P/L calculated with interest included already? At least that's how it shows up in Meta Trader...the total P/L of a position includes the interest paid/earned already.

So, the logic makes sense, right? Here's some math:

1 EUR/USD open 1.3000 close at 1.3050 (P/L = $500) with a swap of -$13.06
1 USD/JPY open 119.34 close at 119.00 (P/L = -$278) with a swap of +24.78

How would this conceivably be taxed? I assume if we're just straight misc-interest, then basically it would be

profit = (total P/L) + (total swap)
profit = $222 + $11.72
profit = $233.72

I assume there may be another way of taxing this other than taxing on the income of $233.72?

Quoting Trader Tax
Did my own research and that is what you are calling a swap, the interest received or paid will become part of your expense as a trader/investor. as an investor negative interest can only be written of against any positive interest you have. Depending upon what type of business you are trading in you may be able to write all of your interest expense off as a business expense.
  • #162
  • Mar 14, 2007 11:50am Mar 14, 2007 11:50am
Quoting mrmikal
TT,

OK, that makes sense, but isn't the P/L calculated with interest included already? At least that's how it shows up in Meta Trader...the total P/L of a position includes the interest paid/earned already.

So, the logic makes sense, right? Here's some math:

1 EUR/USD open 1.3000 close at 1.3050 (P/L = $500) with a swap of -$13.06
1 USD/JPY open 119.34 close at 119.00 (P/L = -$278) with a swap of +24.78

How would this conceivably be taxed? I assume if we're just straight misc-interest, then basically it would be

profit = (total P/L) + (total swap)
profit = $222 + $11.72
profit = $233.72

I assume there may be another way of taxing this other than taxing on the income of $233.72?
What you have been calling interest, I believe is considered "variations margin" by the IRS. A variations margin is a daily cash flow system under which each owner of a "futures contract" (including a regulated futures contract) declining in value during a trading day must provide additional cash margin (i.e., cash payment to his margin account) equal to the decline in value; an owner of a contract which gained in value during the day is permitted to withdraw margin money from his account equal to his "profit" for that day. Profit or loss for any trading day is measured by comparing the closing price of the futures contract on that day with the closing price on the previous day. In other words, in a variations margin system each "futures contract" or regulated futures contract is marked to the market at the end of the trading day. If this is what you have been talking about, it would be taxed as 60% Long Term capital gain and 40% short term capital gain the same as your foreign currency contract. Hope this helps. 03/14/07 Traders Accounting, Jim Crimmins
  • #163
  • Mar 20, 2007 5:57am Mar 20, 2007 5:57am
Hey im a canadian resident and am looking for helping advice (books, webiste, comments) on taxing forex in canada. I know the canadian tax system is different from US, so some of the rules wont apply. Can anyone provide me with any info with reguards to good canadian forex tax books, or websites, or jus comments in general.

P.S. I dont even know how much % they tax from forex.

any info is much appreciated

thanks and happing pippin.
  • #164
  • Mar 21, 2007 8:11am Mar 21, 2007 8:11am
Try here..

I had to modify the URL as I do not think I have enough posts yet.

xxx.greencompany.com

Hope this helps..
  • #165
  • Mar 21, 2007 9:18am Mar 21, 2007 9:18am
Does anyone know of any tax, legal (IRS, SEC etc) or any other reason/law that would prevent me from doing the following?

i) Trade an account (or several accounts) in my own name.
ii) Trade a joint account with my son.
iii) Trade a joint account with my friend.

I would be the sole trader, trading all of the accounts at the same time.

I would appreciate any input and guidance from anyone with experience or knowledge in such matters.

johnny
  • #166
  • Mar 21, 2007 9:29am Mar 21, 2007 9:29am
The taxation rate is 40%, however I don't know if this is before or after you deposit it to your account (I hope it's the latter).

Also, I did speak to someone at H&R block about this and they told me since I currently reside outside Canada that any money I make in Forex or other investments would be untaxable since Canadian tax law is based on residency and not citizenship.

However I may need to prove I paid tax to my residing coutry. I haven't done it, but may be something to take note of.
  • #167
  • Mar 21, 2007 9:47am Mar 21, 2007 9:47am
Y,

I know this is possible, because I several friends that do this. However, I suspect the tax issue is simply will depend on how you decide declare ownership of the accounts.

I would assume that if an account is technically owned by multiple people, then the tax burden will be spread across multiple people based on their % stake account. Normally the % stake is calculated on initial investment, but that isn't necessarily true...you could technically give anyone 50% ownership if you wanted to. I suppose you could also have the entire account in your name, by the same token, but I'm not sure how the IRS would treat the seed money from your soon or friend if they don't have a stake in the account.

I'm not a tax lawyer, so I couldn't tell you the exact requirements here, but I'm sure the tax treatment will be spread across the ownership regardless of who actually works on the account.

Quoting yorkyjohnny
Does anyone know of any tax, legal (IRS, SEC etc) or any other reason/law that would prevent me from doing the following?

i) Trade an account (or several accounts) in my own name.
ii) Trade a joint account with my son.
iii) Trade a joint account with my friend.

I would be the sole trader, trading all of the accounts at the same time.

I would appreciate any input and guidance from anyone with experience or knowledge in such matters.

johnny
  • #168
  • Mar 22, 2007 8:18am Mar 22, 2007 8:18am
no problems with any of what you asked, people do it all the time
  • #169
  • Mar 22, 2007 12:03pm Mar 22, 2007 12:03pm
Thank you hero dog and Rosco for the info.
  • #170
  • Mar 22, 2007 3:52pm Mar 22, 2007 3:52pm
Quoting nikim
Hey im a canadian resident and am looking for helping advice (books, webiste, comments) on taxing forex in canada. I know the canadian tax system is different from US, so some of the rules wont apply. Can anyone provide me with any info with reguards to good canadian forex tax books, or websites, or jus comments in general.

P.S. I dont even know how much % they tax from forex.

any info is much appreciated

thanks and happing pippin.
Nikim,
You have to pay tax to CCRA if you are Canadian resident. Percentage of tax depends on your total income.
There are several tax brackets with different rates. The highest tax bracket rate is over 40% on income over C$65,000.00.

US and other brokers don’t report your profit to CCRA...

But first make money. Loss is not tax deductable.

Jas
  • #171
  • Mar 23, 2007 8:19am Mar 23, 2007 8:19am
Thanks mrmikal and pipple! I appreciate you taking the time to respond and answer my questions.

johnny
  • #172
  • Mar 24, 2007 3:37am Mar 24, 2007 3:37am
Question.. why are you looking at a joint account in the first place? Is this for an LLC?

Good Luck!
  • #173
  • Mar 24, 2007 10:16pm Mar 24, 2007 10:16pm
From what I know Forex falls under capital gains and is 40% no matter what income bracket you're in.

Also, about what I said above, you need to be in a country that taxes your world tax, or most likely Canada will tax since the country you're residing in hasn't.
  • #174
  • Mar 25, 2007 9:49am Mar 25, 2007 9:49am
No!....it's just to give them a little encouragement and introduction to the challenging, but profitable world of Forex trading.
  • #175
  • Mar 25, 2007 10:32am Mar 25, 2007 10:32am
Quoting yorkyjohnny
No!....it's just to give them a little encouragement and introduction to the challenging, but profitable world of Forex trading.
If you let them trade on their own, you probably won't have any tax problems ! !
  • #176
  • Mar 25, 2007 10:37am Mar 25, 2007 10:37am
Quoting Hero Doug
From what I know Forex falls under capital gains and is 40% no matter what income bracket you're in.

Also, about what I said above, you need to be in a country that taxes your world tax, or most likely Canada will tax since the country you're residing in hasn't.
I don't know if Forex falls under capital gains.
But I know that tax is not "40% no matter what income bracket you're in".
It is important income bracket you are in.
If it is considered as capital gains then your income is calculated as percentage of that capital gain (I think 60%).
Example, if you make $100,000 than you pay tax on $60,000 depending on tax brackets.

If you are Canadian resident you do have to pay tax on world income.

If I were you I wouldn't collect such information on forums.
Simple call CCRA they will explain.

Jas
  • #177
  • Mar 25, 2007 11:13am Mar 25, 2007 11:13am
You will require a LPOA {Limited Power of Attorny} from anyone whose Funds you are Trading.

Due to the Patriot Act, it will be required that the Account is Funded from your friend/s {Could be multiple friends} Bank Account/s and these are the only account/s that any withdrawals will be returned to.

Lots of hoops to jump through {faxing Passport photos etc. etc.} but it can be done. Sounds like a PAM {Percent Allocation Managed} is what you are looking for. If so, the borker may even do the math for all in the group as to how much of "The Fund" each owns.

Good luck but believe me when I say that even friends will have the audacity to say things like "How come we only made 25% this year?"
  • #178
  • Mar 25, 2007 11:37am Mar 25, 2007 11:37am
You really don't need power of attorney to trade a friends or relatives account. Just do it! This industry is totally unregulated for the moment.
T
  • #179
  • Mar 25, 2007 3:57pm Mar 25, 2007 3:57pm
If your worried about Canadian tax in Forex, which is based on your income bracket, open up a trading corporation for the province you live in.

Talk to CCRA and tell them what you are doing. You'll be amazed at how helpful they are and how much grief this will save you later.

For one thing, a corporation is taxed only 20% on it's first $200,000. You can also deduct your expenses from your earnings....like say leasing your car. If you trade full time, better to pay yourself a salary in case you lose it all..then you can collect EI and pay towards your CPP. It is also easier to convince banks for money when you have a salary.

If you make more than $50,000 a year from all your income sources, this is the way to go to save on tax. Lots of paperwork is the downside. Once you hit a $100,000 per year, it's a no brainer to open a corp.

You can also let the corporation buy everything...so in case you do go belly up you can allow your corporation to take the fall and not your personal credit.

Talk to CCRA or a chartered accountant that specializes in taxes. Keep it honest and transparent with CCRA and you save a whopper on taxes.
  • #180
  • Mar 26, 2007 8:12pm Mar 26, 2007 8:12pm
Thanks for all your help. I will get get a legal opinion when I decide to proceed, as the regs don't appear to be too clean cut. It is kind of you guys to take the time to respond.

johnny
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